Investors are people or entities that risk their money in various financial assets or ventures with the expectation of earning a return, which they may or may not realize. Here’s what you need to know about what an investor does, types of investors and the types of things investors invest in.
What is an investor and what do they do?
An investor is a person or organization that provides capital with the expectation of earning a return on their investment. Investors assume the risk that a venture may fail and are compensated in the form of a return if they are successful.
There are many different types of investors and they employ a variety of investment strategies ranging from very simple ones that require little financial knowledge to very sophisticated approaches used by professional investors.
Professional investors spend their days researching investments – both current and new opportunities – and may meet with company management teams. Some professional investors may also spend time meeting with existing and potential clients.
Types of investors
Investors come in all shapes and sizes, but can broadly be separated into two categories: individual investors and institutional investors.
Individual investors
Individual, or retail, investors invest on their own behalf. This includes people that invest for retirement through 401(k) plans or IRAs, as well as someone who buys and sells securities in a brokerage account.
Individual investors are typically managing significantly less money than institutional investors and likely won’t have access to the same resources. Here are some other ways individual and institutional investors differ.
Institutional investors
Institutional investors are investing money that doesn’t belong to them on behalf of other investors and covers a broad range of entities. Hedge funds, mutual funds, pension funds, insurance companies would all fall under the category of institutional investors.
Institutional investors typically invest more broadly than individual investors and might include assets such as real estate, private equity or other alternative investing strategies.
Investors vs. traders: What’s the difference?
The terms investors and traders are often used interchangeably in the financial media, but there are some major differences between the two.
Traders tend to be more short-term focused and may hold positions for just a few weeks, days or even seconds. In fact, traders may not even care about the underlying assets they’re trading if they’re trading based on technical analysis, which uses charts and other tools in an effort to predict future prices. The success of a trader depends on short-term price changes, rather than the performance of the underlying asset.
Investors, on the other hand, tend to take a longer-term view, with intended holding periods of years rather than days. The longer you hold an asset, the more your return will be determined by the underlying asset’s performance rather than the whims of traders at a given time. As famed security analyst Benjamin Graham said, in the short run the market is a voting machine but in the long run it is a weighing machine.
What do investors invest in?
Investors invest in a number of different types of financial assets where they hope to earn a return on their money. Below are some of the most popular investments.
Investors may also own assets that don’t produce anything for their owners, meaning the return is entirely based on what you can sell the asset for to someone else. These assets are more speculative by nature.
Bottom line
Investors can be individuals or institutions that invest money with the expectation of generating a return. They invest in a wide variety of assets such as stocks, bonds, real estate and more. Investors tend to take a longer-term perspective than traders, who may hold their positions for just a matter of days or less. Beginner investors may want to consider investing in low-cost index funds before trying to identify individual stocks or other winning securities.
FAQs
Investors can be individuals or institutions that invest money with the expectation of generating a return. They invest in a wide variety of assets such as stocks, bonds, real estate and more. Investors tend to take a longer-term perspective than traders, who may hold their positions for just a matter of days or less.
What is meant by investor? ›
An investor is an individual or an organization that gives money to another person or organization hoping to see a future profit. Technically, anyone can be an investor: If you invest money into something, you are an investor.
What does a typical investor do? ›
Investors typically generate returns by deploying capital as either equity or debt investments. Equity investments entail ownership stakes in the form of company stock that may pay dividends in addition to generating capital gains.
What are two responsibilities you have as an investor? ›
At the same time, investors need to shoulder certain responsibilities themselves—for example, to plan carefully to meet their investment goals and to stay informed about the risks and rewards of their investments.
What is the job of investors? ›
What Is an Investor? Investors commit their own money or their client's money into products, property, or financial ventures in order to gain more money in return. As an investor, you may invest in the stock market and purchase stocks, bonds, mutual funds, options, and futures.
What is an investor and what do they do? ›
An investor is a person or organization that provides capital with the expectation of earning a return on their investment. Investors assume the risk that a venture may fail and are compensated in the form of a return if they are successful.
What qualifies you as an investor? ›
An individual with gross income exceeding $200,000 in each of the two most recent years or joint income with a spouse or partner exceeding $300,000 for those years and a reasonable expectation of the same income level in the current year.
What is the main goal of an investor? ›
Safety, income, and capital gains are the big three objectives of investing but there are others that should be kept in mind as well.
What do investors do with your money? ›
An investor commits money to something, like stocks, businesses, or real estate, hoping for it to grow in value over time. They analyze risks and opportunities, build a diversified portfolio, and may actively manage their investments or passively trust in a long-term strategy.
What do the best investors do? ›
Becoming a good investor
Harnessing the power of long-term investing comes down to these three basics: invest early, reinvest your earnings, and stay diversified.
Some pay income in the form of interest or dividends, while others offer the potential for capital appreciation. Still, others offer tax advantages in addition to current income or capital gains. All of these factors together comprise the total return of an investment. Internal Revenue Service.
Do investors make a lot of money? ›
Can You Make a Lot of Money in Stocks? Yes, if your goals are realistic. Although you hear of making a killing with a stock that doubles, triples, or quadruples in price, such occurrences are rare, and/or usually reserved for day traders or institutional investors who take a company public.
What do investors do everyday? ›
Successful investors spend their time generating leads because every lead has the potential to earn hundreds of thousands of dollars. They spend a lot of their day networking with agents or working with their team to set up systems to expand their reach.
What does it mean when someone is an investor? ›
An investor is an individual that puts money into an entity such as a business for a financial return. The main goal of any investor is to minimize risk and maximize return. It is in contrast with a speculator who is willing to invest in a risky asset with the hopes of getting a higher profit.
What do they mean for an investor? ›
An investor is any person who devotes capital to an investment in the hope that they will see a return from it. However, in the investment community, investors tend to have a different attitude to investing than traders.
Is investor the owner? ›
Generally speaking, an investor is anyone who invests money into a company, or any other business structure, with the purpose of taking an ownership interest in that company or other business structure. So, an investor places their money into the business to help with business plans, growth and development.
What is the best definition of an investor? ›
An investor is someone who provides (or invests) money or resources for an enterprise, such as a corporation, with the expectation of financial or other gain.
